Wednesday, November 02, 2011

Greece - digging a deeper hole

The announcement that Greece intends to put the austerity/bailout package to a national referendum undid much, if not all, of the positive that could be taken from the rather sketchy EU bailout plan.

There is widespread and probably realistic expectation that, when the time comes to vote, the Greek people will reject a package of tax increases and entitlement cuts. This is likely to be true, even if the alternative is the national equivalent of bankruptcy and even greater hardship. Even if the referendum is passed, it would be a safe assumption that no sane person would have failed to take their money out of the Greek banks, out of overseas banks based in Greece (ring fencing risk etc) and out of Greece generally. (Quite frankly, I'm a little surprised that Greece hasn't been stripped bare already.) At this point, no amount of regulation is going to stop that from happening and, one way or another, people will get everything they can off the ship before it finally sinks.

For what it's worth, matters have reached the point where the rest of the EU should wash its hands of Greece, let the country (and its creditors) sort out its own mess and put the stability fund to work to ensure that European banks do not fail (or, if they do, nationalise them to prevent a domino effect). Greece clearly wants to fail and should be allowed to do so as a lesson to other states that consistently spending beyond your means will, sooner or later, lead to considerable economic hardship. I'd say it would also teach lenders and investors to at least consider the possibility of country default risk when lending/investing but that would be a waste of effort - every few years they seem to need re-educating.